This research report was produced by Colorado Wealth Management Fund with assistance from Big Dog Investments.
CYS Investments (CYS) has two preferred shares. CYS-B is often an attractive pick for investors seeking a dividend, but this week there’s been a bit of a change. CYS-A is currently the best choice for a dividend yield closing in on 8%.
New York Mortgage Trust (NYMT) has two preferred shares with high yields at 7.85% and 7.99%. The portfolio for NYMT carries dramatically more credit risk than CYS. CYS invests their entire portfolio into agency securities.
CYS-A is $0.24 into my hold range. With a 7.79% stripped yield, it’s a good option for investors seeking a material yield. CYS-B has recently seen a rise in price which has brought the stripped yield down to 7.61%. CYS-B has crossed the line into my sell range by $0.03.
NYMTP and NYMTO are both in my sell range. I believe NYMTP is by far the worst of these two preferred shares.
CYS-A has dramatically less call protection compared to CYS-B. However, the current price for CYS-A is only $0.03 over par value. The worst-cash-to-call is $0.16. The call risk for CYS-A for investors looking to add a new position isn’t all that bad. I believe there are better investments in the preferred share space, but investors who are currently holding CYS-A are making a good choice to stay with their position.
When looking at the NYMT preferred shares, keep in mind that the portfolio carries a significant amount of credit risk. There has almost always been a market failure on the difference in price for NYMT’s two preferred shares. NYMTO has a lower price, a higher stripped yield by 14 basis points, and almost two more years of call protection. NYMTO is significantly better than NYMTP and yet the market continues to price them close together. NYMTO is the clear winner between the two.
CYS-A has a lower yield and less call protection compared to NYMTO. However, the underlying portfolio for CYS carried materially less risk than NYMT.
Out of these 4 preferred shares, CYS-A is the only one I’d be comfortable holding in my portfolio at current prices. The yields for the NYMT preferred shares are high, but aren’t high enough to make up for the underlying credit risks. CYS-B does have more call protection, but it is 18 basis points under the stripped yield from CYS-A. The biggest risk to CYS-A is the call risk, but the price is only 3 cents over par. This puts the worst-cash-to-call for CYS-A at $0.16.
Here’s additional information on the preferred share stripped yields:
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I was asked by a reader to put more information about the yields in the preferred share articles I’ve been writing. If there’s anything you’d like to see, please leave a comment.
Broker and preferred share tickers
Almost every major broker in the United States has their own method for referring to preferred shares. I put together a spreadsheet that cross-references each of the major brokers along with the symbol they use for each preferred share. Here are the different tickers for the preferred shares by broker.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.